The digital economy has changed the game rule for Finance Departments and CFO’s of today’s organizations. Information is now required on real-time basis and has to be provided real-time, because management has to keep pace with the constantly changing business environment. The digital world has made it easy for customers to be aware of the alternatives out there, and what your competitors are offering and thereby making them more exacting in their expectations.
Consequently, “boards are increasingly focused on digital strategy and are looking to technology and finance leaders to help them understand what the digital developments and wider megatrends mean for their businesses and develop the strategies needed to respond”. (PWC 2015).
The digital revolution is radically changing finance and creating a world that is hyper-connected, with continues innovations constantly disrupting temporary status quos and challenging conventional wisdom. These technological break-through are challenging the traditional boundaries and the hitherto comfort zone that have “held finance back and allowing a complete reinvention of the profession”. For Finance Teams, it is no longer business as usual.
In this week’s post, we discussed how the emergence of the SAP S/4 HANA Finance is helping the Finance Departments and the CFO’s navigate through and keep pace with all these changes that are constantly being introduced in the business world at extraordinary speed and with so much disruptive power, by being able to process, report and analyse information real-time.
Challenges of the Old Architecture before S/4 HANA Finance
The old architecture was, in the best-case scenario, characterized by single instant ERP System, but with data spread across multiple database tables. At worst, we have multiple standalone silo systems requiring a great deal of reconciliation efforts before any semblance of accuracy is established. Consequently, limitations of legacy IT systems ranked very high on the list of significant organizational barriers to digital transformation.
In the “pre SAP S/4HAHA Finance” scenario, you have one ERP Platform that brings you closer to the single source of truth situation. However, you do not have the seamlessness between the transaction processing systems and your reporting and analytics systems. In many cases, data from several tables have to be combined to tell the full story, reconciliation efforts between related modules have to be put in (example secondary cost element information not readily available in FI) and other related challenges. Consequently, the real-timeliness of the reporting is compromised.
The scenario more challenging than this is found in organizations with standalone silo systems. Here Finance Professionals spend most of their time bug down in reconciliation efforts between these silo systems and removing data redundancies in order to prepare data to a level that one can be confident to report on them. In today’s digital world, by the time you are through with these efforts, any information from such reports would have been sunk and of no significance whatsoever.
The New Architecture- S/4HANA
With SAP S/4HANA, SAP is successfully building a new architecture for its solution for modern business processes (including its financial solution) to align with the ever-increasing digitized world.
The hearth of this architecture is the rework of its data model through “a common data base approach for OLTP and OLAP using an in-memory column database” (Hasso Plattner) with the effect of converging the transactional and analytic processing and making reporting and analytics real-time.
This new architecture has become necessary because the new business models brought by the digital world “can’t be held back by disconnected processes and legacy technologies, and enterprises can’t wait until the end of the month to see results, or for the annual budget cycle to make investment decisions”.(Thack Brown).
Some of the benefits of SAP S/4HANA are briefly discussed below:
The Universal Journal
SAP S/4HAHA finance brings with it the Universal Journal concept, meaning that data, both transactional and planning, is stored only once, in a line item table with full detail for all applications. This translates to savings in reconciliation efforts of Finance Teams. This saved man hour can be deployed in other important functions.
This single source of truth also means that data redundancy is eliminated with consequential reduction of memory footprint on the data base space. This ensures the production of reports and related analytics to be done on real-time basis.
Financial Closing Life Cycle
With SAP S/4HANA organizations can move from the monthly closing concept and yearly Audit to almost instant closing and reporting cycles. With today’s digital environment, the pressure to meet the expectations of hyper-connected, digitally sophisticated customers is changing the game rule for Finance professionals, and making any information that will be received on monthly basis outdated and of no value.
All Cost Elements (primary and secondary) are now Part of the Chart of Accounts
Under the old architecture, all P&L related G/L Accounts in FI are created as cost elements in CO and commitment items in FM. Secondary cost elements exist only in CO and not FI. This means that there is always this regular periodic exercise of reconciling the FI with CO.
With SAP S/4HANA the cost elements, (both primary and secondary) are part of the chart of accounts, and are created once without replication anywhere. Meaning that with SAP S/4HANA there is substantial savings in man-hour because of the elimination of reconciliation effort in this area. There is no longer a need for Co real-time integration for transfer of secondary CO postings to FI. This contributes to the production of financial reports real-time.
Elimination of Batch Input Sessions
Batch input sessions runs are no longer necessary, as all posting updates are now done online.
Elimination of Reconciliation efforts
Because all documents posted to the General Ledger from whatever source are posted to the new Universal Journal table ACDOCA, reconciliation between the various SAP Modules are no longer necessary. There is no aggregation, indexes or data redundancies.
Simplified Data Models
In order to overcome performance issues, traditional database-based systems have relied on aggregates and indices, leading to redundancies and possibility of inconsistent data storage.
We no longer have aggregate or summary tables and application index tables, as these are now replaced by the SAP HANA compatibility views. In addition, as noted earlier, there are no data redundancies because we now have a single source of truth. Consequently, we have Shrinking data volumes and memory footprint, thereby reducing technical cost and complexity.
SAP S/4HANA Finance Simplifies Reporting and Analytics
With the convergence of the transaction, reporting and analytical layer, an innovation made possible by SAP S/4HANA, Finance Teams as owners of much of the required data and analytical techniques are ideally placed to pioneer change and orchestrate innovation. Because now information is obtained real time.
We have move from a situation where reporting is instinct driven (that data is good enough after much reconciliation effort) to fact driven (because we have a single source of truth and data redundancies eliminated).
We have moved away from yearly, monthly, and weekly reporting (which is quite inadequate at best, in the digital finance era) to instant, real-time reporting (hourly and to the minute reporting).
Business analytics is now pervasive and integrated with SAP S/4HANA, thanks to the convergence of transaction processing and analytics.
With the convergence of transaction processing and analytics, management is able to receive reporting of KPIs giving them early leads on areas of the organization’s strategy, functions, and processes needing attention, and also be able to benchmark organizations performance with competitors. They are now more agile to adapt to shocks from the ever-changing digital world.
With SAP S/4HAHAN Finance, Finance Teams, CFOs, Management and the Board now have single, real-time view of business performance at any level of detail.
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